Supreme Court confirms (and confines the scope of) the doctrine of economic duress

Pakistan International Airline Corporation (Respondent) v Times Travel (UK) Ltd (Appellant) [2021] UKSC

The question

Does the doctrine of economic (or “lawful act”) duress exist and, if so, when does it apply?

The key takeaway

The doctrine of economic duress exists under English law in limited circumstances. To establish liability for the tort of lawful act economic duress, the Supreme Court adopted a conservative approach – whilst bad faith may be relevant in the context, a commercial party can use its bargaining power to negotiate contractual rights or impose onerous terms.

The background

The Claimant/Appellant, Times Travel UK Ltd (TT) was a travel agent selling flights to Pakistan on planes owned by Pakistan International Airline Corporation (PIAC). Following a dispute over unpaid commissions, PIAC sent a notice of termination to TT, ending their appointment and reducing their ticket allocation. At virtually the same time, PIAC offered TT re-appointment under a new contract, the terms of which required TT to waive all claims for commission it may have had against PIAC under the previous agreement. Considering that it had no viable alternative, TT entered the new contract to avoid collapse. TT then sought to rescind the contract for economic duress and to recover commissions due under the previous contract. 

The High Court found that TT was entitled to do so but its decision was overturned by the Court of Appeal, which held that economic duress could not be established, as it considered that PIAC had used lawful pressure to achieve an outcome which it believed, in good faith, that it was entitled to, since PIAC genuinely considered that it had a defence to TT’s claims for commission. 

The decision

The Supreme Court unanimously dismissed the appeal. It confirmed the three elements to be established for lawful act economic duress: (i) the defendant’s illegitimate threat or pressure, (ii) which caused the claimant to enter the contract, (iii) in circumstances in which the claimant had no reasonable alternative to giving in to the threat or pressure. 

Due to the lawful nature of the threat, the Supreme Court agreed that the threat’s illegitimacy was determined by focusing on the justification of the demand. Where a demand motivated by commercial self-interest would ordinarily be justified, there were “rare” occasions where a demand would be unjustified and enter lawful act economic duress territory. However, the Justices disagreed on what would be recognised as an illegitimate threat or pressure at law. 

Lord Burrows considered that the threat or pressure would be illegitimate if: (i) the defendant had deliberately created or increased the claimant’s vulnerability to the demand; and (ii) the demand was made in bad faith. Lord Hodge (for the majority) accepted that bad faith may be relevant to the content and context of a demand but disagreed with the emphasis on bad faith. Instead, “morally reprehensible behaviour which in equity was judged to render the enforcement of a contract unconscionable” should be treated as illegitimate. This was because a commercial party can use its bargaining power to negotiate contractual rights or impose onerous terms, as there is no doctrine of inequality of bargaining power or general principle of good faith in English contract law. 

Despite conflicting opinions on bad faith, the Supreme Court affirmed the Court of Appeal’s decision, concluding that PIAC had not used reprehensible means to apply pressure. PIAC’s conduct was certainly “hard-nosed commercial negotiation”, but it had believed in good faith that it was not liable for breach of contract as a result of its failure to pay past commissions. As such, TT fell at the first hurdle for establishing lawful act economic duress. 

Why is this important?

This is the first time that the Supreme Court has considered the doctrine of economic duress and its key elements. The decision may be considered conservative - and unhelpful to those on the wrong side of an inequality of bargaining power - emphasising the narrow circumstances where the conditions will be met and suggesting it will be rare in commercial contract negotiations.

Using illegitimate means to manoeuvre a party into a position of weakness to force it to waive its rights could be relevant but, without the “bad faith requirement”, there could be uncertainty as to what “morally reprehensible behaviour” is required to establish lawful act economic duress. 

Any practical tips?

While the judgment confirms that the boundaries of economic duress are not fixed, succeeding with lawful act duress claims will be very difficult. Claimants may find comparable causes of action, such as undue influence and unconscionable bargains, could be more appropriate.